NJ drugmaker Merck sues U.S., calls Medicare drug prices ‘extortion’

Merck is suing the federal government over a plan to negotiate Medicare drug prices, calling the program a sham equivalent to extortion.

The Rahway, New Jersey-based drugmaker is seeking to halt the program, which was laid out in the Inflation Reduction Act and is expected to save taxpayers billions of dollars in the coming years.

Merck said in a complaint filed Tuesday that the program does not involve genuine negotiation. Instead, it said the U.S. Department of Health and Human Services selects drugs to be included and then dictates the price, threatening drugmakers with “a ruinous daily excise tax” if they decline to agree.

“It is tantamount to extortion,” the drugmaker said in the complaint, which was filed in the U.S. District Court for the District of Columbia.

The drugmaker added that it expects its diabetes treatment Januvia to be part of “the IRA’s scheme” starting later this year.

Representatives of the federal agency did not immediately respond to requests for comment from The Associated Press.

Merck said in the complaint that the plan laid out in the IRA suggests that federal officials will sit down with drugmakers and negotiate voluntary price agreements.

But the drugmaker said the program doesn’t involve actual negotiations or agreements. It said HHS picks the drugs to be included and then leans on the drugmakers to provide steep discounts under the tax threat.

Merck says the program violates the U.S. Constitution in a couple of ways. They include the Fifth Amendment’s requirement that the government pays "'just compensation’ if it takes ‘property’ for public use,” according to the complaint.

The drugmaker noted that Congress could have simply allowed HHS to state a maximum price it would pay for a drug or use its leverage to negotiate, but that would have enabled drugmakers to walk away from talks.

Instead, Merck said the government uses the threat of severe penalties to requisition drugs and refuses to pay fair value, forcing drugmakers “to smile, play along, and pretend it is all part of a ‘fair’ and voluntary exchange.”

“This is political Kabuki theater,” the complaint states.

Republican lawmakers also have criticized President Joe Biden’s administration over the plan, noting that it could compel drugmakers to pull back on introducing new drugs that could be subjected to haggling.

The federal government is expected to soon release rules for negotiating drug prices and then will publish in September a list of 10 drugs that it will start price negotiations on next year.

The plan marks the first time ever that the federal government will bargain directly with drug companies over the price they charge for some of Medicare’s costliest drugs.

Negotiated prices won’t take hold until 2026.